Last time, we looked at one way to use behavioral economics to help our clients make better decisions in mediation by setting reference points before we begin negotiating. Today we discuss another way to do better in any negotiation: thinking like a trader.
Most attorneys have a great deal
of experience with negotiation and may even consider themselves to be professional
negotiators. (Interestingly, Kahneman and Tversky found that even professionals
make the same cognitive errors as the rest of us, but we will put that aside
for the moment.)
Most parties do not have the same level of negotiation
experience as their lawyers. And even if they do, the stress of litigation and
mediation leaves them less capable of making rational economic decisions. Although
there are benefits to long days of mediation, experienced negotiators know that
12 or 14 hours of mediation can reduce one’s ability to think clearly and make
good business decisions. Especially at the end of a long day, parties need to understand
the impact that cognitive errors have on them.
Kahneman and Tversky tested ways
to help people be less sensitive to these cognitive errors. They found first
that professional traders in the financial markets – people who make decisions
on gambles for a living – are more tolerant of losses and as a result suffer from fewer
cognitive errors when making financial decisions.
Amazingly, one simple way to help
people make better decisions is to tell them to “think like a trader.” Participants
in experiments become less risk averse, and their emotional reaction to loss
(as measured physiologically) decreases when given this simple advice. In other
words, simply asking people to “think like a trader” gives them a better
framework for analyzing their choices and helps them make better, more rational
decisions.
A simple yet powerful tool that works well when it's time to close the deal. Next time, another tool for closing deals: Shifting Reference
Points And Using The Endowment Effect.
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